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Understanding Restructured Debt


Debtors have the ability to restructure their outstanding payments when filing for particular chapters of bankruptcy. For individuals and couples, filing for Chapter 13 bankruptcy makes the most sense; on the other hand, applying for Chapter 11 is more appropriate for those with businesses. It takes careful planning and informed legal assistance to form and propose a reasonable debt repayment plan. Thankfully, our West Palm Beach bankruptcy attorneys can help clients navigate the process effectively and efficiently.

Chapter 13

Under a Chapter 13 bankruptcy, single and married debtors have the option to pay back their debt over a span of three to five years using the remainder of their income after accounting for living expenses. According to the Census Bureau Median Family Income, Florida’s average annual income for one earner is $48,000 and $58,960 for two people. For those with an income above the state average, their payment plan will be close to 5 years or 60 months. People with an income below the state level will typically be responsible for 3 years or 36 monthly payments.

There are some debts that take a higher priority under a Chapter 13 bankruptcy. These overdue payments are required to be paid in full, including recent income tax debts, overdue child support and alimony, and unpaid secured debts. Fortunately, unsecured debts—such as credit cards and medical bills—are typically discharged at the end of the bankruptcy case.

The “cram down” provision in Chapter 13 bankruptcy allows debtors to reduce certain secured debts they are required to pay, excluding home mortgages and recently purchased vehicles. If the secured item’s market value is lower than the amount owed, there is the option to pay back the fair market value and have the remaining amount discharged. The only stipulation is that debtors need to pay off the reduced amount by the end of their repayment plan.

Chapter 11

Corporations facing a significant amount of debt often turn to a Chapter 11 bankruptcy for financial relief. Due to the expensive fees that come with filing for this type of bankruptcy, it is more likely to be pursued by larger companies. Debtors and creditors work closely to begin the restructuring process, starting with an evaluation of the financial health of the business, and followed by the negotiation of loans in order to deduct expenses and capitalize on company assets.

Decisions such as changing the company’s leadership, selling assets, or reorganizing the company to become more efficient are decisions that the two parties will discuss during repayment planning. After evaluating these criteria, a proposed plan for paying the debt back is agreed upon. If the debtor fails to present an acceptable proposal, the creditor will devise a different competing plan that will be put to a creditor committee vote. This situation is not ideal, as it may take the company years to carry out the strategy.  The ideal is to have an experienced attorney who can formulate a plan that is the debtor Company’s best path forward to reorganization.

Our experienced South Florida bankruptcy attorneys help our clients make the most informed and beneficial decisions during bankruptcy cases. If you have any questions regarding your business and which bankruptcy payment plan might be right for you, contact Kelley Kaplan & Eller for a no-obligation consultation!

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